The PF[1:0] switch selects the input to the PF1 and PF0 pins (ADC channel 1/0) on the ATmega169.
Positions:
In this position the PF0 and PF1 are from the PORTF on the STK502 are connected to the PF0 and PF1 on the ATmega169. Default position.
In this position the pin 1 from the screw-terminal on the STK502 are connected to PF0 on the ATmega169, and the pin 2 from the screw-terminal are connected to PF1 on the ATmega169. Select this position in order to run the code in Application Note "AVR064: STK502 – A Temperature Monitoring System with LCD output"
In the sensor position both PF0 and PF1 are connected to the senor pins, regardless of using single ended or differential ADC-measurements in the application. This means that it's not possible to use PF1 as an ordinary I/O-port even though only PF0 (single ended) is used with the ADC.